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Ag Econ
Chapter 7
| Term/Question | Definition/Answer |
|---|---|
| Firm (Producer/Business) | organization combining inputs of labor, capital, land, and raw/unfinished component materials to produce outputs |
| Private Enterprise | ownership of business by private individuals |
| Production | process of combining inputs to produce outputs; ideally of value greater than value of inputs |
| What are the four different types of competition on the competition spectrum? | Perfect Competition, Monopoly, Monopolistic Competition, Oligopoly |
| Perfect Competition | many firms trying to sell identical products |
| Monopoly | one firm selling product; faces no competition |
| Monopolistic Competition | many firms selling similar, but not identical products |
| Oligopoly | few firms sell identical/similar products |
| Profit = | Total revenue - total cost |
| Revenue | income firm guarantees from selling product |
| Total Revenue = | Price x Quantity Supplied |
| Explicit Costs | out of pocket costs; actual payments; wages, rent, etc. |
| Implicit Costs | opportunity cost of using resources that firm already owns; depreciation of goods, materials, and equipment |
| Accounting Profit | difference betwix $ brought in and $ paid out |
| Accounting Profit = | total revenue - explicit costs |
| Economic Profit | both explicit/implicit costs |
| Economic Profit = | Total Revenue - Total Costs |
| Total Costs = | Explicit Costs + Implicit Costs |
| Factors of Production (Inputs) | resources that firms use to produce products; natural resources (land/raw materials) labor capital technology entrepreneurship |
| Production Function (Q) | math equation telling how much output (Q) firm can produce with given amount of inputs |
| Production Function = | Q= f[NR,L,K,t,E] |
| Fixed Inputs (K) | factors of production can't easily be increased or decreased in short period of time |
| Variable Inputs (L) | factors of production that firm can easily increase/decrease in short period of time |
| Short Production Function | Q = f[L,K] |
| Short Run | Period of time during which at least some factors of production are fixed |
| Long Run | period of time during which all factors are variable |
| Marginal Product (MP) | additional output of one more worker |
| MP = | change in total production divided by change in labor |
| Law of Diminishing Marginal Productivity | general rule that as firm employs more labor, eventually amount of additional output produced declines |
| Factor Payments | what firm pays for use of factors of production (all costs from firm perspective) Raw Materials prices rent wages/salaries interests/dividends profit |
| Variable Costs | costs of variable inputs, like labor |
| Fixed Costs | costs of fixed inputs; rent expenditure firm makes before production starts; doesn't change in short run; doesn't change regardless of level production |
| Total Cost | sum of fixed/variable costs of production |
| Average Total Cost (ATC) | total cost divided by quantity of output produced |
| ATC = | TC divided by Q u shaped |
| Marginal Cost (MC) | additional cost of producing one more unit of output |
| MC = | Change in TC divided by change in Q generally sloping upwards |
| Average Variable Cost | variable cost divided by quantity of output lies below average total cost curve; typically u shaped/upward sloping |
| Average Profit (Profit Margin) | $ - Average Cost |
| Market $ > average cost | average profit is postitive |
| $ < average cost | profits are negative |
| What are all factors in the long run? | variable |
| What happens to the long run production funciton because all factors are variable? | long run production function slows most efficient way of producing any level of output |
| What is the 'long run'? | the period of time when all costs are variable |
| Production Technologies | alternative methods of combining inputs to produce output |
| Economies of scale | situation where Q of output goes up, cost/unit goes down |
| Long-run average cost (LRAC) curve | shows lowest possible average cost of production, allowing all inputs to production to vary so that firm is choosing its production technology lowest cost of production for each Quantity of output when fixed costs very |
| Short-run average cost (SRAC) curve | average total cost curve in short term; shows total average fixed costs and average variable costs |
| Constant return to scale | expanding all inputs proportionately doesn't change average cost of production |
| Diseconomies of Scale | long run average cost of producing each individual unit increases as total output increases |
| What could cause a firm/factory to be difficult to manage or run efficiently? | when the firm or factory grows to large |
| What are the implication of the shape of the LRAC curve? | shows how many firms compete in industry whether firms in industry have many different sizes if they tend to be the same size |
Created by:
horktera
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